US stocks slip from record highs as doubts grow over AI investment returns

Mixed · 2US stocks slipped from record highs set a week earlier, as investors worried about returns on the trillions of dollars invested in artificial intelligence. 1 2 Mixed · 2As of Thursday morning, NBC News reported, the S&P 500 was off more than 1% from its record and the Nasdaq about 4% below its peak; CNA said the S&P 500 remained down only about 1% from its record high set this month. 1 2 Left · 1NBC News cited several drivers: the Financial Times' report that quarterly revenue growth at Anthropic had slowed (though its revenue is nearly $17 billion and the company says it is profitable), worries about Chinese memory-chip makers, and selling of bonds that back some data centers over fears AI revenue won't cover the borrowing. 1

Centre · 1CNA pointed to concern over AI financing, including a tumble in shares of CoreWeave, an AI cloud company with about $50 billion in debt, and sharp declines in semiconductor and hardware stocks such as Dell Technologies. 2 Centre · 1Strategists at Deutsche Bank and RBC Capital Markets have pulled back on tech recommendations; Deutsche Bank said on October 9 that the rotation into tech had "run far and the risk-reward no longer looks favorable in the near term." 2 Left · 1Economist Ed Yardeni cut his year-end S&P 500 target to 7,900 from 8,400, citing investor caution about AI and doubts about inflation and interest rates; the index was around 7,600. 1

Centre · 1The Philadelphia semiconductor index has fallen 8% this month but is still up more than 60% on the year, against a 13% year-to-date gain for the S&P 500; other sectors are picking up some of the slack from tech. 2 Left · 1NBC News stressed the wider economy: nearly half of this year's US growth is attributed to tech-related spending, the resulting wealth effect has supported consumer spending, and sustained declines would put growth at risk, with Citi analysts listing higher rates, energy prices and slow job growth as downside risks. 1 Mixed · 2Inflation and rates are also in play: the Bureau of Labor Statistics reported business inflation at its highest since December 2022, and CNA said hot inflation data raised bets on a Federal Reserve rate rise at its end-October meeting, though futures mostly pointed to December. 1 2

Centre · 1Next week's earnings are seen as a test: S&P 500 profits are expected to rise more than 30% in the third quarter per LSEG IBES, Meta reports first among AI hyperscalers whose capital spending Goldman Sachs expects to reach about $1.2 trillion next year, and Lam Research, Texas Instruments, Tesla and Netflix also report. 2 Mixed · 2Analysts were split in tone: Natixis' Garrett Melson called the market "jittery", while UBS Global Wealth Management said another strong earnings season should help equities withstand moderately higher rates, and Wells Fargo CEO Charlie Scharf said AI investment and high employment outweigh economic risks. 2 1